Social Security and Medicare: Disturbing math, tough politics

WASHINGTON – It seems no one wants to cut Social Security or Medicare benefits.

Not President Joe Biden, who is already telling voters that his upcoming federal budget proposal will do so “Defend and Strengthen” the programs. Not Republican House Speaker Kevin McCarthy, who has taken cuts to the programs off the table to put them into negotiations the federal debt limit.

There’s only one flaw in these statements: Social Security won’t be able to pay out its promised benefits in about a dozen years, while Medicare can’t in just five years. Economists have made the projections and say both programs will drive the national debt higher in the coming decades, forcing the next generation of lawmakers to make grudging decisions.

Here’s a breakdown of the dilemma, the possible solutions, and the hard politics involved Social Security And Medicare:

THE CHALLENGE

It’s a mathematical problem that requires a political solution.

Payroll taxes largely fund Social Security and Medicare. They’re generally deducted from workers’ paychecks, which is why Democrat Biden says people only get back what they’ve already put into the system.

But as more baby boomers age and retire, there are more beneficiaries and not enough tax revenue to fund the programs. Payroll taxes are expected to bring in $1.56 trillion this year, but the combined cost of Social Security and Medicare will likely total $2.16 trillion, according to the data a report by the Congressional Budget Office last week. The agency warned of this in its report Social Security Benefits possibly even earlier than previous projections, beginning in 2032.

CBO Director Phillip Swagel said Friday at an event hosted by the nonpartisan Policy Center that “benefits will be paid in full today as promised, drawing on the Social Security Trust Fund.” But when the government isn’t able to pay full benefits, “it’s a challenge,” he said.

The number of people enrolled in Medicare has more than tripled to approximately 65 million since its inception in 1966. More than 10 million new retirees and disabled people have joined in the past decade alone, according to data from the Centers for Medicaid and Medicare Services.

The lack of tax revenue combined with a rising number of beneficiaries would eventually result in the Social Security Trust Fund being unable to fully pay benefits in 2035, a report by the Social Security and Medicare Trustees predicted last June, although the CBO said that this could happen sooner. The Medicare trust fund would be unable to pay full benefits by 2028.

This forces the inevitable choice of whether to prop up trust fund finances or cut people’s benefits. Continued delays by Congress and the President in solving this math problem could reduce the number of possible solutions.

WHAT ARE THE SOLUTIONS?

Basically there is a combination of four options:

– Increase taxes.

— Change benefits such as eligibility age.

– Reduce costs.

— Relying more on general revenue to fill the gap, which could mean higher budget deficits or cuts in other programs.

Biden made a move with his last year Anti-Inflation Act, which would allow Medicare to negotiate lower prices for a handful of drugs and penalize drug companies if they increase drug prices faster than inflation. The law also makes vaccines free, capping monthly out-of-pocket insulin costs at $35 and capping them Out-of-pocket medication expenses at $2,000 from 2025.

The CBO said components of the Prescription Drugs Act would save $237 billion over 10 years, prompting some Republican lawmakers to say it was a spending cut that would hurt drug companies’ profits and force them to limit their spending on developing new treatments. But the law aims to lower the cost people pay for drugs, rather than eliminating benefits.

Democrats are also trying to limit spending on the increasingly popular — and expensive — Medicare Advantage program, a network of private insurance plans that are reimbursed by the government. Recently, 70 Democrats signed a letter to the president urging his administration to crack down on fraud and wasteful spending in the program, which federal investigators say it is doing cost taxpayers billions of dollars.

Sen. Mitt Romney, R-Utah, has been pushing legislation that would create bipartisan committees to look at ways to bail out the Social Security and Medicare trust funds. The bill went nowhere but has limited bipartisan support, including Senate Democrats Joe Manchin of West Virginia and Mark Warner of Virginia.

Payroll taxes were capped at $147,000 last year — meaning no one paid taxes after that threshold was exceeded. In 2019, Rep. John Larson, D-Conn., proposed legislation that would reinstate the payroll tax on incomes over $400,000.

Last year, members of the House Republican Study Committee proposed raising the age at which someone could qualify for Social Security and Medicare. Right now, people are eligible for their full Social Security benefits at age 67, a minimum age that has increased by two years since the program began nearly 90 years ago. You must be at least 65 years old to access Medicare.

Last year Sen. Rick Scott, R-Fla., introduced a plan that would require Congress to reconsider all federal laws every five years — which led to this criticism of Biden that Social Security and Medicare would be cut. That idea was met with ice cold by Senate Minority Leader Mitch McConnell, R-Ky, saying it “won’t be part of our agenda.”

After several months of flak, Scott on Friday revised his plan Explicitly excluding Social Security and Medicare.

The CBO has also outlined nearly 60 policy options that could save the federal government billions of dollars on Medicare, including higher monthly premiums for some older and disabled adults.

POLITICS IS TOXIC

In his Address of the State of the Union, Biden received boos from GOP lawmakers when he said some Republicans want to cut spending on the programs. It prompted an impromptu standing ovation for seniors, as both parties made local commitments to avoid cuts to Social Security and Medicare.

Put simply, voters like low taxes and generous benefits. That means it can be politically suicidal to revise either program. Any amendment can be used against a lawmaker seeking re-election, especially with the year 2024 approaching. Over the past two weeks, Biden has delivered speeches in key states like Wisconsin and Florida, warning that some Republicans would gouge the programs despite the GOP’s denials.

Why are politics so bad?

This is due to the composition of the electorate. AP VoteCast found that nearly six out of 10 voters in last year’s midterm elections were over 50. Of this group, three out of ten were aged 65 or older. This means that a dominant stratum of voters is already benefiting from these programs or is about to do so.

REFORM IS POSSIBLE

Go back 40 years to 1983.

President Ronald Reagan, a Republican, and House Speaker Tip O’Neill, a Democrat, agreed to extend the life of Social Security, which faced bankruptcy. The changes to the program included raising the retirement age, delaying the cost-of-living adjustment by six months and ordering government employees to start paying into Social Security.

When Reagan signed the law into law on April 20, 1983, he said, “This law demonstrates for all time our nation’s unwavering commitment to Social Security. It reassures the elderly that America will always keep the promises made in troubled times half a century ago. It gives those who are still working the certainty that they too have made a pact with the future.”

The 1984 election had little political impact. Reagan won a second term in a landslide victory while the Democrats held onto the House of Representatives.

THIS IS A GLOBAL PROBLEM

It’s not just the US. Countermeasures are being taken in other countries in an effort to contain the costs associated with an aging population.

In France, there have been repeated protests against French President Emanuel Macron’s plans to raise the minimum retirement age for a full state pension from 62 to 64. Almost 1 million people marched in Paris, Nice, Marseille, Toulouse, Nantes and other cities on February 11, with Paris police officials saying they arrested eight people for violations including vandalism and possession of a firearm.

In the Chinese city of Wuhan last week, seniors belted out the communist anthem “Die Internationale” in protest at the government’s cuts in healthcare services.

In a recent analysis for the International Monetary Fund, Harvard University economics professor David Bloom and research associate Leo Zucker said that aging globally “poses a colossal array of health, social and economic challenges in the coming decades.” They warned of the cost of inaction when there is not enough labor to fund health care for older people, leading to more illness and a lower quality of life.

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Financial reporter Fatima Hussein in Washington contributed to this report.